Is Centaurus’s John Arnold Losing His Touch?

Centaurus’s John Arnold was up “only” 7 percent this year. Given the economic circumstances, that’s pretty good. But it’s a far cry from his previous spectacular highs.

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Is John Arnold losing his Midas touch?

In 2011, his Houston-based hedge fund, Centaurus Energy Master Fund, rose “just” 7.07 percent, according to sources. This single-digit return came on the heels of his first loss, a decline of 3.27 percent, in 2010.

However, given the poor performance posted by most hedge fund managers in 2011, making 7 percent in 2011 is almost like being up 25 percent in any other year.

Arnold, who specializes in trading natural gas, is the former Enron trader who launched Centaurus in 2002 with the $8 million bonus he received from Enron after making the firm $750 million.

He quickly attracted attention when he posted returns of 160 percent and 200 percent in 2005 and 2006, respectively. He was up another 50 percent or so in each of the two ensuing years. In 2009 he was only up 29.2 percent.

Arnold joined Enron in 1995 after graduating in three years from Vanderbilt University with a BA in science.

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In December, Centaurus agreed to pay $75,000 to the Nymex to settle charges he violated certain rules regarding position limits. The Nymex said the hedge fund neither admitted nor denied the rule violations.

On December 20, 2011, a panel of the Nymex business conduct committee found that on January 21, 2011, the CME Group market regulation department ordered Centaurus not to increase its aggregate short May 2011 Henry Hub natural gas futures position. The panel also found that on January 26, 2011, Centaurus violated market regulation’s imposed position limit by establishing an aggregate intraday peak position that exceeded the “do not increase” order by 0.11 percent, according to the Nymex.

The regulator said this was Centaurus’s fourth position-limit rule violation in a 24-month period and violated a previous order by the business conduct committee to cease and desist from violating Exchange rules issued January 6, 2011.

Arnold has certainly given back a fair amount of his wealth. He and his wife recently pledged to give a majority of their wealth to charity under the “Giving Pledge” program, the brainchild of Warren Buffett and Bill and Melinda Gates.

“We look upon our financial position with a mix of disbelief and humility, never having dreamed that we would be in this situation,” he wrote in a letter published on the website announcing the participation in the pledge. He stressed the couple’s solid middle-class upbringing and noted they both attended public secondary school and worked their way through private universities. “And, of course, we dreamed of one day being rich, in the way that all young people fantasize about having everything they want,” he went on to write.

Last August, Centaurus returned up to $1 billion of its $5 billion in assets to investors, according to published reports.

It also halved its management fee to 1.5 percent and reduced its performance fee to 30 percent from 35 percent.

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